CFPB Issues Higher-Priced Mortgage Final Rules

Hot off the heels of its qualified mortgage and ability-to-repay rules, the Consumer Financial Protection Bureau late Thursday also issued final rules for high-cost mortgages.

The CFPB defined them as having annual percentage rates that exceed the average prime rate by 1.5 percentage poits or more for first liens, or by 3.5 points or more for loans secured by a subordinate lien.

The new rules ban balloon payments and pre-payment penalties, bans modification fees and limits late fees. Charging for providing a payoff statement and encouraging consumers to default on existing loans so they can refinance to a higher-priced loan are also out.

Consumers must also receive housing counseling before taking out a high-priced mortgage, and the CFPB added a new requirement that higher-priced mortgages maintain escrow accounts for a minimum of five years.

“Addressing problems in the mortgage market is critical to helping our economy recover,” said CFPB Director Richard Cordray. “Today’s changes will better help consumers to understand the real costs of owning a home while protecting them from harmful practices that can trap them into high-cost mortgages.”

The bureau also Thursday implemented a rule that requires lenders provide a list of homeownership counseling organizations to consumers shortly after they apply for a mortgage.

Mortgage lenders can expect more rules soon regarding higher-priced mortgages that concerns appraisals. The NCUA Board held a public briefing on the rule Thursday during its board meeting.

The file rule will increase appraisal standards and appraisal information provided to borrowers. NCUA staff told the board they expect the rule within the next few days, and say the CFPB will likely give lenders a full 12 months to comply.